Date: 20030711
Docket: T-986-03
Citation: 2003 FC 868
Vancouver, British Columbia, July 11, 2003
Present: The Honourable Madam Justice Tremblay-Lamer
BETWEEN:
MINISTER OF NATIONAL REVENUE
Applicant
and
SML OPERATIONS (CANADA) LTD.
Respondent
REASONS FOR ORDER AND ORDER
[1] This is an application for an order under subsection 231.7(1) of the Income Tax Act, R.S.C. 1985, c. 1 (the "Act") that the respondent provide the information and documents sought by the Minister.
[2] In or about March 1998, Ceco Holdings Ltd, Ceco Operations Ltd., and Ceco Properties Ltd. were involved in a reorganization which involved the sale of certain assets of Ceco Properties Ltd. to Ceco Operations Ltd. and then to a newly formed partnership known as Madill Equipment Canada on a tax-deferred basis.
[3] The partners of Madill Equipment Canada were Ceco Operations Ltd. and the respondent, SML Operations (Canada) Ltd.
[4] One of the issues identified and being audited by the Canada Customs and Revenue Agency was whether the amount of $17,977,500 contributed by the respondent to Madill Equipment Canada was really disguised proceeds of sale of the assets by Ceco Operations Ltd.
[5] On February 26, 2002, the Minister issued nine requirements requesting information regarding the transactions at issue. Seven of the requirements were addressed to Gilbert Schmunk, a director and officer of Ceco Properties Ltd., Ceco Holdings Ltd. and Ceco Operations Ltd., and two of the requirements were addressed to Joel A. Nitikman of the law firm Fraser Milner Casgrain.
[6] On November 21, 2002, the Minister issued two more requirements, one pursuant to subsection 231.2(1) of the Act, (the "231.2 requirement") and one pursuant to section 231.6 of the Act ("the "231.6 requirement").
[7] The requirements were addressed as follows:
Attention: Robert Wainio
Being an Officer, Director or Agent of
SML Operations (Canada) Ltd.
2560 Bowen Road
Nanaimo, BC
V9R 5M6
[8] According to the applicant, the respondent has failed to provide all the documents and information sought by the Minister, as dictated by the 231.2 requirement.
[9] Conversely, the respondent submits that the 231.2 requirement was directed to Mr. Wainio in his personal capacity, and therefore, that it is not required to provide any information or documents to the Minister.
[10] Subsection 231.2(1) of the Act provides the following:
| 231.2. (1) Notwithstanding any other provision of this Act, the Minister may, subject to subsection (2), for any purpose related to the administration or enforcement of this Act, including the collection of any amount payable under this Act by any person, by notice served personally or by registered or certified mail, require that any person provide, within such reasonable time as is stipulated in the notice,
(a) any information or additional information, including a return of income or a supplementary return; or
(b) any document.
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231.2. (1) Malgré les autres dispositions de la présente loi, le ministre peut, sous réserve du paragraphe (2) et, pour l'application et l'exécution de la présente loi, y compris la perception d'un montant payable par une personne en vertu de la présente loi, par avis signifié à personne ou envoyé par courrier recommandé ou certifié, exiger d'une personne, dans le délai raisonnable que précise l'avis:
a) qu'elle fournisse tout renseignement ou tout renseignement supplémentaire, y compris une déclaration de revenu ou une déclaration supplémentaire;
b) qu'elle produise des documents.
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[11] Subsection 238(1) of the Act provides the following:
| 238. (1) Every person who has failed to file or make a return as and when required by or under this Act or a regulation or who has failed to comply with subsection 116(3), 127(3.1) or 127(3.2), 147.1(7) or 153(1), any of sections 230 to 232 or a regulation made under subsection 147.1(18) or with an order made under subsection 238(2) is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to
(a) a fine of not less than $1,000 and not more than $25,000; or
(b) both the fine described in paragraph 238(1)(a) and imprisonment for a term not exceeding 12 months.
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238. (1) La personne qui ne produit ou ne présente pas ou ne remplit pas une déclaration de la manière et dans le délai prévus à la présente loi ou à son règlement ou qui contrevient au paragraphe 116(3), 127(3.1) ou (3.2), 147.1(7) ou 153(1) ou à l'un des articles 230 à 232 ou à une disposition réglementaire prise en vertu du paragraphe 147.1(18) ou encore qui contrevient à une ordonnance rendue en application du paragraphe (2) commet une infraction et encourt, sur déclaration de culpabilité par procédure sommaire et outre toute pénalité prévue par ailleurs:
a) soit une amende de 1 000 $ à 25 000 $;
b) soit une telle amende et un emprisonnement maximal de 12 mois.
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[12] Subsection 231. 7(1) of the Act provides the following:
| 231.7. (1) On summary application by the Minister, a judge may, notwithstanding subsection 238(2), order a person to provide any access, assistance, information or document sought by the Minister under section 231.1 or 231.2 if the judge is satisfied that
(a) the person was required under section 231.1 or 231.2 to provide the access, assistance, information or document and did not do so; and
(b) in the case of information or a document, the information or document is not protected from disclosure by solicitor-client privilege (within the meaning of subsection 232(1)).
231.7.
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231.7 (1) Sur demande sommaire du ministre, un juge peut, malgré le paragraphe 238(2), ordonner à une personne de fournir l'accès, l'aide, les renseignements ou les documents que le ministre cherche à obtenir en vertu des articles 231.1 ou 231.2 s'il est convaincu de ce qui suit:
a) la personne n'a pas fourni l'accès, l'aide, les renseignements ou les documents bien qu'elle en soit tenue par les articles 231.1 ou 231.2;
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[13] The wording in subsection 231.7(1) of the Act indicates that three conditions must be satisfied before it is appropriate for the Court to exercise its discretion to order a person to provide any information or documents sought by the Minister under subsection 231.2(1) of the Act.
[14] First, the Court must be satisfied that the person served with the requirement letter was required under subsection 231.2(1) of the Act to provide the information or documents sought by the Minister. Second, it must be shown to the Court that, although the person was required to provide the information or documents sought by the Minister, he or she did not do so. Third, the Court must be satisfied that the information or documents are not protected from disclosure by solicitor-client privilege.
[15] In light of the seriousness of the consequences for non-compliance which includes fines and/or imprisonment under subsection 238(1) of the Act, I will not exercise my discretion to order the production of the documents sought by the Minister unless I am satisfied that the conditions have been clearly met.
[16] With regard to the first condition, in the case at bar, it is not clear whether the 231.2 requirement was addressed to the respondent or to Mr. Wainio.
[17] On the one hand, it can be argued that the requirement was addressed to the respondent and only to the attention of Mr. Wainio. This is evidenced by the fact that Mr. Wainio was identified as being "an officer, director or agent of SML Operations (Canada) Ltd.".
[18] On the other hand, it can be argued that the requirement was addressed to Mr. Wainio in his personal capacity. The fact that the salutation of the requirement was "Dear Sir" supports the view that the addressee was Mr. Wainio, and not the respondent. In addition, the threatened penal sanction in the requirement reinforces the position that the addressee was Mr. Wainio, since a corporation cannot be imprisoned.
[19] In light of the uncertainty as to whether the requirement was addressed to the respondent or to Mr. Wainio in his personal capacity, I am not satisfied that the first condition has been met.
[20] With regard to the second condition, the evidence indicates that although Mr. Wainio was of the opinion that the requirements should have been addressed to SML Operations (Canada) Ltd., he nevertheless, based on a review of his documents and those of SML Operations (Canada) Ltd., provided some documents to the Minister.
[21] The applicant submits that it can be inferred based on the respondent's conduct that there are other documents and information that have not been provided by the respondent. However, given the partial production of some documents, and the severe penalties for non-compliance under the Act, I am unable to conclude that the respondent was uncooperative. As a result, I am not satisfied that the second condition has been met.
[22] With regard to the third condition, the applicant submits that the documents and information in the possession of the respondent are not covered by solicitor-client privilege or common interest privilege.
[23] The respondent has not advanced any argument regarding whether the documents are protected by privilege. The respondent's position is that the requirement was addressed to Mr. Wainio. Accordingly, it has not adduced any evidence that the documents and information in its possession are protected by privilege.
[24] In light of the respondent's position, I am unable to determine whether the documents requested are protected from disclosure by solicitor-client privilege or whether common interest privilege applies in the present case.
[25] However, given that I am not satisfied that the first two conditions have been met, I do not need to address the third condition.
[26] For these reasons, I am not satisfied that this is a case in which I should exercise my discretion to order the production of the information and documents sought by the Minister.
[27] Consequently, the application is dismissed with costs.
ORDER
THIS COURT ORDERS that the application is dismissed with costs.
(Sgd.) "Danièle Tremblay-Lamer"
J.F.C.
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-986-03
STYLE OF CAUSE: Minister of National Revenue v. SML Operations (Canada) Ltd
PLACE OF HEARING: Vancouver, B.C.
DATE OF HEARING: July 7, 2003
REASONS FOR ORDER : Tremblay-Lamer, J.
AND ORDER
DATED: July 11, 2003
APPEARANCES:
Robert Carvalho FOR APPLICANT
Gordon S. Funt FOR RESPONDENT
Lori A. Mathison
SOLICITORS OF RECORD:
Morris Rosenberg FOR APPLICANT
Department of Justice
Vancouver Regional Office
Fraser Milner Casgrain LLP FOR RESPONDENT
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